Thank you for joining us. My name is Tina, and I will be your operator today. I would like to welcome everyone to the Riley Exploration Permian Incorporated First Quarter 2025 Earnings Conference Call. All lines have been muted to minimize background noise. After the speakers' remarks, there will be a question-and-answer session. I will now turn the call over to Philip Riley, CFO. Please proceed.

Good morning. Welcome to our conference call covering first quarter 2025 results. I'm Philip Riley, CFO. Joining me today are Bobby Riley, Chairman and CEO; and John Suter, COO. Yesterday, we published a variety of materials, which can be found on our website under the Investors section. These materials in today's conference call contain certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. We'll also reference certain non-GAAP measures. The reconciliations to the appropriate GAAP measures can be found in our supplemental disclosures on our website. I'll now turn the call over to Bobby.

Thank you, Philip. Good morning, and welcome to our earnings call. Riley Permian has once again demonstrated capital efficiency with strong performance this quarter. Our modest capital investing during the first quarter allowed us to generate substantial free cash flow and further reduce debt, setting us up favorably for the year ahead. We're excited to announce that we have reached an agreement to acquire Silverback Exploration for $142 million in cash. This strategic acquisition involves a largely undeveloped asset base in New Mexico, which is contiguous and overlapping with Riley Permian's existing position in the Yeso trend, thereby extending our footprint in the region. The asset includes approximately 47,000 net working interest acres and significantly enhances our long-term upstream development potential. It adds over 300 gross incremental undeveloped horizontal locations to our inventory, along with around 50 overlapping gross undeveloped horizontal locations, which will increase Riley Permian's current working interest in existing units. Notably, 98% of the acreage is held by production, providing flexibility for future development. We anticipate further synergies from this acquisition in several areas. Number one, water handling. The asset comes with existing water disposal infrastructure and SWD injection capacity to further support future hydrocarbon production. This is particularly important in New Mexico with the regulatory bodies making it difficult to get new SWD permits. Number two, gas takeaway. The undeveloped locations will bolster our previous decision to invest in midstream gas infrastructure in the region. And number three, power generation. We plan to extend our proven processes from Texas to New Mexico, enhancing our power generation capabilities. Despite the current market volatility, we believe this acquisition is justified given our long-term outlook for both our industry and our company. This year, we are prioritizing the acquisition and preservation of high-quality inventory over the conversion of inventory to production. We believe Riley Permian is well positioned to succeed in the current market environment with our strong asset base, disciplined capital allocation philosophy, and robust hedging profile. Now I'll turn the call over to John Suter, our COO, to discuss operational results for the quarter, followed by Philip Reilly, our CFO, who will discuss the acquisition financing and forward guidance.

Thank you, Bobby, and good morning. Once again, Riley demonstrated excellence in operations through safe operating practices. The team achieved a total recordable incident rate of 0 for the first quarter of 2025. We achieved 93% safe days in the first quarter, a metric requiring no recordable incidents, vehicle accidents, or spills over 10 barrels. This is a record percentage of safe days in a quarter for Riley. Congratulations to the entire team. Moving on to activity. You will remember that we dropped the 1 rig used in the 2024 campaign in late December. Our 2025 drilling campaign kicked off in Q1, spudding our first well for the year in late March. We plan to use the rig to drill a 10-well program this year, replenishing the DUCs we've completed thus far in 2025. For Q1 2025, we drilled 0, completed 10, and turned in line 0 gross operated wells. 5 of those completed wells are flowing back now and will begin production in May. The other 5 wells will come on in the second half of 2025 with minor infrastructure additions. Net production declined slightly from 1.46 million to 1.41 million barrels of oil quarter-over-quarter in Q1, but increased 9% compared to the same quarter last year. Equivalent production is up 19% compared to the same quarter last year from 1.85 million to 2.2 million barrels of oil equivalent. Our average daily net production was 15,620 barrels of oil per day and 24,430 barrels of oil equivalent per day for the first quarter of 2025. All of this was accomplished without any new wells being added during the quarter, which is a testament to the high-quality assets that we operate. This relatively flat quarter-over-quarter production outcome was achieved while lowering operating costs. Our LOE per BOE for Q1 2025 was $8.34 per equivalent barrel, a 2% reduction from Q4 2024 and an 8% reduction from the first quarter a year ago. Our operations team prides itself on driving the best economic outcomes no matter what the activity level. Service costs are a subject we're keeping a close watch on, particularly in light of uncertainty around current and future tariffs. That said, based on the recent activity, we see an average of 10% compression in many service costs over last year. While tariffs could have some offsetting impact on tangible costs, even factoring that in, our position remains strong. We're very encouraged by how significantly tangible costs have come down pre-tariffs and even post-tariffs, we're still well positioned to lower overall well cost. Should we see a significant decline in rig count such as 30, 40 rigs in the industry, we believe our cost compression in the range of 20% could be realized. We're very excited about the Silverback acquisition that Bobby just mentioned. It roughly doubles the size of our Yeso footprint in New Mexico, located adjacent to our Red Lake asset to the West and Southwest, and overlapping our acreage in many areas. Here are a few more details on some of the synergies that Bobby mentioned with this combination of assets. A large water disposal system with 5 SWDs will augment Riley's already robust water operation by roughly 35% to 40%. Water disposal capacity, in conjunction with gas takeaway, are key facets to enabling development plans in this area. A combination of 2.6 million barrels of recycled water storage is located in 2 primary facilities. This could be a significant cost-saving mechanism for Riley frac jobs and aligns us well with the current regulatory environment. With the acquisition of Silverback increasing the magnitude of our New Mexico holdings, the value and timing of our midstream project are key for development optionality between both assets. Let me update you on what we've accomplished so far with our project and describe our flexibility of completion. During Q1, we completed the first phase of our New Mexico gathering and compression project with the commissioning of our Birdie compressor station on the west side of the Red Lake asset. This was completed on time and on budget. We established roughly 15 million cubic feet per day compression capacity toward our existing gatherers high-pressure system, and in the process, left additional low-pressure capacity to fill in the interim. In the short term, this new station will increase our ability to deliver gas from this asset more consistently and reliably. It began initial flows to the purchaser on March 26. Once our 20-inch high-pressure transmission line to Targa is completed in 2026, we will swing gas deliveries from this station to that outlet. We're currently finalizing the path and purchasing right of way as per our schedule through late summer. As mentioned earlier, we're keeping a close eye on cost. We have the flexibility to order pipe and begin construction at a time that makes economic sense with commodity pricing and cash flow considerations. The station is designed to be expandable to 100 million cubic feet per day with additional compressors installed as needed. Prior to completion of the high-pressure transmission line, our goal is to maximize the utilization of the compressor station by focusing on near-term development plans approximately to the station. We continue to utilize our power generation station with a greater percentage of our existing Texas assets with 50% to 60% of our power needs provided by self-generation in Q1. We're evaluating the benefits of a similar installation in New Mexico. With the expanded size of our portfolio in New Mexico and infrastructure improvements planned with gas and water, the power generation support will more fully allow us to develop unconstrained. In summary, for the quarter, we are pleased with our delivery of relatively flat production at lower LOE, especially considering no new wells turned in line as per plan. We made significant midstream progress with the completion of our compressor station in Red Lake, all while delivering stellar safety metrics. We picked up a rig and look forward to efficient and cost-effective Q2 development. I want to congratulate the Riley development and operational team for a very successful quarter. Philip, I'll turn it over to you.

Thank you, John. Our first quarter financials are straightforward. We converted $54 million of operating cash flow before working capital to $39 million of upstream free cash flow on account of a lighter CapEx quarter, reinvesting only 35% in the upstream while keeping volumes mostly flat. We allocated upstream free cash flow as follows: 56% went to debt reduction and cash, lowering debt by $21 million quarter-over-quarter to 0.9x leverage. A combined 23% was invested in our midstream and power projects and 21% was allocated to the dividend. I'll next describe some of the acquisition mechanics and funding estimates. With the transaction effective date of January 1 and an estimated closing date of July 1, we'll benefit from 6 months of cash flow that will serve as an adjustment to the funds required at closing. At current prices, this may amount to a $15 million reduction at closing and after accounting for some transaction expenses may result in a $130 million draw on the revolver. We do forecast a modest debt increase during the second quarter on a stand-alone basis based on current estimates from the impact of working capital movements. By the third quarter, pro forma leverage after the acquisition will increase but to a level with which management and the Board is comfortable, and we believe similar to levels where we were at the end of 2023. We'll focus on managing the leverage profile in the second half of the year, which will be impacted by market prices, cash flow, and spending. We have a track record of paying cash for an asset and subsequently deleveraging over time, and that's our plan here. We'll benefit from some novated hedges coming with the acquisition entity as well as additional hedges we've put on recently. For the balance of 2025, on a pro forma combined basis, we've hedged oil prices for 70% of forecasted PDP volumes and 57% of total oil volumes at a weighted average $67 downside price. For 2026, on a pro forma combined basis, we've hedged 67% of forecasted PDP volumes at a weighted average $59 downside price. Let's now discuss our modified guidance. In March, we announced 2025 investing guidance calling for material investments across upstream, midstream, and power as we seek to build complementary assets in a self-reinforcing model. On our last call, we forecasted staying debt neutral for the year at around $70 WTI. Since then, both realized prices and the forward strip have been well below that level. Additionally, the Silverback acquisition opportunity manifested, and we and our Board decided that was worth pursuing even in a volatile down market. Given the combination of these factors, we decided to adjust down our CapEx across each of upstream, midstream, and power. On a stand-alone basis, before accounting for the acquisition and reinvesting any of its cash flow, we're reducing 2025 total investments by $105 million or 50%, including upstream CapEx by 41%, midstream CapEx by 71%, and the Power JV investment by 25%. The impact on stand-alone upstream volumes is modest with midpoint oil guidance only down 4% and still showing year-over-year growth. One way we're achieving this is by turning to sales of already completed wells. We plan to complete more wells than we're drilling owing to the fact that we have an inventory of DUCs to utilize. We also provide guidance combined with the acquisition, showing the second half of 2025 for combined volumes and the full year averages, which only include a half-year benefit from the acquisition. At this point, we forecast only modest incremental development activity and reinvestment of the acquisition cash flow, perhaps 2 net incremental wells given the currently depressed price outlook. On an inflation-adjusted basis, oil prices are at their lowest levels in the past 20 years, aside from 12-month periods in 2015, 2016, and then again in 2020. We believe this is a better time to procure and preserve inventory, as Bobby said. We're certainly excited about the long-term development potential of the assets. And while we believe breakeven development prices are far below the current market, we believe more favorable market conditions will return for bringing on new production. On the midstream project, John described how we're spending selectively while pausing for now on the order of the pipe material itself. This will help reduce the concentration of the project spend and spread more into 2026. Additionally, we may explore some financing alternatives for the midstream project. There's a scenario where we elect to use entity-level financing and reaccelerate the project. We'll report back next quarter. On power, we continue with good progress and foresee reprioritizing a few elements following the acquisition, including adding battery backup to the self-generation project in Texas, adding another self-generation project in Mexico and using the thermal generators from one of the five ERCOT projects for that, while finally deferring the battery generation aspect of the ERCOT project. Net-net, we forecast this reducing our power equity investment need in 2025 by $5 million or 25%. I'll turn it back to Bobby for closing. Thank you.

Thank you, Philip. Once again, we appreciate your time and interest in Riley Permian. While we're pleased with our Q1 2025 results, our focus remains firmly on the future. We are committed to building long-term value through disciplined capital allocation, strategic infrastructure investments, and operational excellence. Our recent initiatives position us for sustained growth, and we believe our long-term strategy will continue to drive shareholder value well beyond this upcoming year. Thank you for your continued support. Operator, you may now turn the call over for questions.

Our first question comes from John White with ROTH Capital.

Congratulations on the Silverback acquisition. It looks like a very nice transaction for you. I was going to ask about the held by production content, but Bobby addressed that in his opening remarks. What do you think the motivation for the seller was? Was it driven by private equity structure or something like that? What do you think?

Yes, John, this is Philip. I'll take that. Yes, the seller here was one of the large private equity shops, and they often focus on kind of $3 billion to $5 billion type of entities and exits. While this is great scale for Riley Permian, maybe eventually, it was going to be just a bit too small for them. At the same time, there's a real strategic move and unlocking that we're doing here. A lot of the region has been constrained by some infrastructure, including gas. And there are some efforts being made by third-party midstream companies to believe that, but probably insufficiently. So the project that we started in the fall that we announced there in January, building our pipe really gives us a strategic advantage here. And we believe that we were really best positioned to unlock that whereas somebody else really couldn't take advantage of that. Does that help?

Yes, very helpful and makes very good sense. Thanks for the extra detail and I'll turn the call back over to the operator.

Our next question comes from the line of Jeff Robertson with Water Tower Research.

Philip, following up on the midstream aspect of the Silverback transaction, does the larger contiguous acreage position affect the scope of your midstream project? Are there any challenges in integrating their volumes into the system you plan to build? Additionally, will you be able to enhance your economic benefits by incorporating those volumes into the originally designed system?

Yes, I'll start and then let John chime in. This acquisition certainly reinforces our choice to invest in infrastructure. The map clearly shows the complete adjacency and overlapping acreage. We can definitely leverage the pipeline we are constructing, and we may also require additional gathering and compression in the future, though it's not immediately necessary. John can elaborate on that. This acquisition does present some synergy, which we're excited about. I'm referring to gas, but it applies to water as well, as John mentioned. So, Jeff, there is definitely an opportunity to utilize this from the upstream side for operations. From a midstream perspective, this brings a significant amount of additional volumes that can flow through the system. The working interest is slightly lower, similar to what we already have. As we noted in the previous earnings call, we can bill working interest partners and most royalty owners for the fees involved. Overall, this creates a mutually beneficial situation. John, do you have anything to add?

Yes. I think we're really excited about this. I mean this is an asset we've been interested in for quite some time. As it turns out, our West side compressor station that we just completed was really perfectly placed as it worked out in the end. It is just really approximately close to this asset, the East side of the Silverback asset. So like Philip said, there'll be some gathering systems to be put in to make full use of it over time. But we're in no rush with the HBP. There's several gatherers out there that are working fine for the moment that we'll work with. But in the long run, it makes perfect sense to be able to bring in additional gas to our line to Targa. So it really fits in well. If the compressor station had been on the east side of our assets, it would have been a little bit more challenging to get anything over there. So it worked out well.

John, does the ability to move gas more efficiently have an impact on your ability to produce oil?

Absolutely. If you don't have gas and water takeaway, it really does constrain you. And so this puts us in a good position to be able to do things as we want when the timing is right. That's a nice thing about this company with the assets we have, with our size, and we're nimble. So when the market turns, we can ramp up, ramp down to take full advantage of it. But you got to have that infrastructure access really more so than many other plays I've been involved with.

So being able to debottleneck gas and the water situation allows you to move more oil, which represents more than 95% of current revenues, correct?

Yes, it's just a necessary means to be able to produce the oil; you've got to be able to handle the other byproducts.

And Philip, could you discuss what impact the Silverback assets might have on Riley's borrowing base when you approach your redetermination in the fall?

Sure. I'd estimate that the PDP value is around half of the purchase price, as this is a largely undeveloped asset. If you consider that and then halve it again, it might give an indication of what we could add to the borrowing base. We're not relying on this, but we do anticipate some additional benefits. Most likely, we'll gain more from our recent development efforts. In the meantime, we have reaffirmed our borrowing base at $400 million, which we're pleased with. While it might have been slightly early for some in the market, there's certainly some uncertainty due to pricing volatility. We'll monitor how pricing evolves throughout the year. In summary, we hope to see some positive impact there.

You spoke about hedging and laid in some swaps for 2026. Can you just philosophically talk about how you are thinking about hedging downside risk in the uncertain market environment that we're in right now?

Yes. We view hedging as a risk management tool. While there's a need for covenant compliance, the main focus is on managing risk, which we prefer to address proactively. Thankfully, we prepared in advance, so we aren't in a position where hedging is urgently needed now. Typically, when we have higher leverage and fixed costs, we seek additional protection. For instance, we previously had favorable 60/80 collars for 2026, with a $60 downside and $80 upside, which we later converted into swaps that enhanced our position by about $5 or $6. This conversion resulted in a $6 or $7 premium over the swap value at that time, which we found advantageous as it provides a clearer cash flow for the coming year. This year, we feel positive about our situation. The difference between our production and total volume forecasts is not as large as it has been in the past, mainly because we aren't investing significantly in development this year. This makes our hedging strategy somewhat easier to manage.

Lastly, on power. Are there any significant permitting differences between what you might need to do power-wise in New Mexico versus what you've been doing in Texas?

I can start. Maybe, John, you can help me. But yes, the air permits a little bit more. It's just a functional item you add to the generator and SCR. And so what we're talking about for the behind-the-meter installation there, which I kind of hinted at there in my prepared remarks, that adds just a little bit of cost. But otherwise, we're looking fine on the permitting and feel pretty good about it.

And our next question comes from Derrick Whitfield with Texas Capital. Bobby Riley, the CEO, responded that he can start the discussion and invited John to assist. He mentioned that the air permits require a bit more effort compared to Texas. It involves adding a functional item to the generator and SCR. Regarding the behind-the-meter installation he previously referenced, this addition incurs a slight increase in cost. However, overall, they are managing well with the permitting process and feel optimistic about it.

Congrats on a strong update and transformational acquisition. Maybe starting first with the Silverback acquisition. It's clear the acquisition materially increases your net undeveloped locations and offers considerable synergy opportunities. Could you guys speak to how this asset competes for capital and the opportunity you see to accrete working interest across this position over time?

Yes. I believe the eastern side of this asset, particularly the eastern half, closely resembles the reservoir quality we already possess. Initially, our focus will be on developing the eastern side of the Novo asset and the western side of the Riley asset to leverage the existing compression station and pipeline to Targa. That's our initial outlook. Economically, I would say those two areas are quite similar.

Great. And then maybe shifting over to the stand-alone business. It's quite remarkable that production is only impacted by 3% given the near 50% decrease in 2025 capital. As you guys think about the adjustments you're making to the capital plan for non-D&C capital, does that give you adequate runway once you're in a position to increase capital to the upstream business?

Yes, I can start. It is a mix here of drilling and completions capital that we're cutting, but also some infrastructure admittedly. That was part of the initial kind of $200 million budget that we started with earlier this year. That includes a variety of, say, non-power JV power installation like PME, some water. We also had some growth capital in there, frankly, for some land acquisitions that we kind of earmarked this acquisition as effectively just a giant land budget there. And so there's some things that we are cutting this year as far as D&C. There's other things that we're effectively deferring a bit that we're fine to defer, and we'll layer in and smooth out over the coming 12 to 24 months or longer.

Our final question comes from the line of Noel Parks with Tuohy Brothers.

I just have a few. Just a housekeeping item. Is there any assumed debt with the transaction?

No.

Okay, great. And you did already comment on the hedges. Just curious about what the recent drill bit pace was with Silverback? Have they been active or not?

Yes. They haven't been very active in drilling. To be honest, it's not due to the quality of their development opportunities. They have been limited by the lack of long-term access to infrastructure. That issue continues to be a challenge for them. They have drilled some wells, but I wouldn't describe their efforts as active.

Yes, it's been 1.5 years since they drilled their last well.

Wow. So a host of quite a few other PE exits we've seen over the years where they really ramp up the production to sort of pump up the valuation is not one of those cases.

You could drill some wells individually, but you really can't scale that up, and that's similar to what we discussed on our last earnings call when they asked Bobby about it. It gives us a competitive advantage since we control the infrastructure, which we believe leads to opportunities like this. So it's been somewhat evident.

Got it. I was just curious about the seller's motivation. You mentioned that the opportunity was appealing even in a weaker oil environment. When I looked at the acreage map, it became clear that you are aware of this division's operation. I can't recall a closer bolt-on I have seen in a recent deal. Did this happen quickly or had it been on your radar for a long time?

I can try to characterize it, Noel. Generally, people are aware of the regional constraints for gas takeaway in the Permian, both in the basin and even up on the North West Shelf. You can look simply at Waha differential and see how much less valuable gas is here in the Permian versus the Haynesville or the Marcellus. So that's not a secret. As far as the deal coming together, I'll say we did our best to make it happen. Obviously, we've worked through some volatility in the past 6 weeks, and we're happy to present to you today what we were able to achieve.

Yes. I think their technical team is quite knowledgeable in carbonates. We are always exploring different opportunities whenever they arise.

Okay. Well, great. It’s terrific to see such a high-quality acquisition. I was sort of under the impression that there wasn’t a lot out there that most of kind of what was coming to market was sort of pitched over. So this is like a welcome surprise. So congratulations.

And we have one final question from the line of Jeff Robertson with Water Tower Research.

Bobby or John, I just wanted to follow up on your comment about the drilling activity of the Silverback asset leading up to the sale. It sounds like from your comments, you're acquiring an asset base that has a relatively shallow decline or at least it's not in a flush decline. Is that the right way to think about it as you start to think about laying out a 2026 capital program, you're not really starting in a big deficit from a screaming decline?

Exactly. As Philip mentioned, it's been 1.5 years since there was any drilling. Therefore, the declines have moderated, and that won't pose a significant issue for us.

So that will allow you to be more opportunistic with your capital as you think about deploying capital in whatever environment we will be in?

Absolutely. We aren't in a position where we need to rush to address either the decline or the expirations. We're actually in a strong position where we can take advantage of some of the infrastructure they have on the water side, allowing us to move cautiously and deploy capital when it makes sense, especially to leverage the new compression that affects both of our assets.

Ladies and gentlemen, that does conclude today's conference call. Thank you all for joining. You may now disconnect.